Indian automakers say proposed tax could make hybrids unviable

NEW DELHI (Reuters) - Indian automakers will this week urge the government to lower a proposed sales tax on hybrid vehicles, as they fear the planned rate could make development of the technology unviable, industry sources and executives told Reuters on Monday.

Last week, India said it would tax hybrid vehicles at a rate as high as 43 percent under a new unified tax regime set to come into effect from July 1. That would be significantly higher than the prevailing tax of about 29 percent on such cars.

India’s auto trade body, whose members include companies such as Maruti Suzuki, Mahindra & Mahindra and Toyota Motor Corp, will push to lower the proposed rate, an industry source involved in the matter said.

If the tax is not reconsidered it will essentially make all hybrid cars unviable, R.C. Bhargava, chairman of Maruti Suzuki, the country’s top-selling carmaker, told Reuters.

“It would drive hybrids out of the market,” he said.

The higher tax on hybrid vehicles comes at a time when India is designing a new green car policy that incentivises electric vehicles over hybrid and conventional models. This is already worrying some carmakers that have invested in hybrid technology.

Bhargava said both electric and hybrid vehicles should be promoted, with buyers allowed to choose.

The new tax structure proposes 12 percent tax on electric vehicles, about 28 percent tax on small petrol cars, and a 43 percent tax on luxury vehicles, the same rate as some hybrids.

The country’s revenue secretary, Hasmukh Adhia, on Monday clarified that small hybrid vehicles would be taxed at 28 percent whereas large hybrids would be taxed at 43 percent. He did not clarify what would qualify as large hybrids.

India’s auto trade body, the Society of Indian Automobile Manufacturers (SIAM), had earlier asked that hybrid and electric cars be taxed 10 percent lower than petrol and diesel cars.

Toyota, which sells the Camry hybrid sedan in India, said in a statement the Indian government was being “short-sighted” by denying strong hybrid vehicles the same benefit as electrics.

To achieve cleaner vehicles the government should review the proposed tax structure, said Shekhar Viswanathan, the vice chair at Toyota’s India unit.